Why chase U.S. financing? Conservative Canadian investors are slow to step up

Amanda Parker’s mobile advertising startup has some initial revenue, and its product has been used by big name companies such as Pepsi, Twentieth Century Fox, Molson and Volkswagen. Looking to capitalize on Uplette’s initial momentum, she is working to expand the four-person company with new developers and salespeople. That expansion requires cash.

The Toronto-based company is seeking $750,000, and Ms. Parker anticipates most of that will flow from U.S. investors. “I’d love to have a Canadian investor on board. However, it just doesn’t look like that’s going to happen,” she said.

“We have far more interest and traction in the United States right now. And investors there are far more willing to commit.”

Ms. Parker’s experience is common among startups seeking much-needed investor cash: Funding in the U.S., for those ambitious enough to seek it, is usually easier to nab. It also comes with experience, networks and connections that Canadian money often doesn’t have.

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How can Canadian startups access that valuable funding? Step one: make sure your passport is valid and get down to the United States.

Earlier this year, Ms. Parker received $4,000 from the Canadian Digital Media Network’s Soft-Landing Program. The funds allowed her to spend six weeks in New York, the ad agency capital of the world. There she met many potential clients and investors.

Her pitch was often met with enthusiasm — and a cheque. “You start the due diligence process almost immediately because their decision making process is a lot faster and they’re far more aggressive,” she said.

That experience hasn’t been mirrored in Canada. Many potential Canadian investors, she said, were uninterested in Uplette, and appeared unlikely to part with their cash, regardless of her pitch. “I call those investors window shoppers. They’re looking around to see what’s happening in the industry, but they’re not actually writing cheques.”

The shortage of active Canadian investors has pushed her further into the United States in search of cash: Ms. Parker is preparing for a trip to San Francisco; another New York trip is also planned. “It’s important for startups to know that they have to spend time [there], both in San Francisco and in New York,” she said.

Uplette was recently part of Extreme Startups’ fifth cohort. For its past two cohorts, the Toronto-based accelerator has employed a new tactic: it takes all the incoming CEOs to New York for a week of programming, including pitch sessions and meetings with potential customers, partners and investors.

“If you’re going to build a global business you typically have to be No. 1 in your category,” said Marcus Daniels, managing director of Extreme Startups. “And you naturally have to have U.S. and other international customers and partners… [U.S. connections are] a complete no-brainer if you want to be No. 1 in the world.”

Extreme Startups has so far produced 24 companies. Mr. Daniels said the vast majority of those companies have raised outside investment, with an average financing of $553,000. And he’s seeing increasing interest from U.S. backers.

Extreme Startups graduate Toronto-based FameBit recently announced a $1.4-million funding round, of which $1.3-million came from U.S. investors.

“Why would you want American money? It’s basically a lot more powerful. You get the connections. You get the names of the investors. You get the ecosystem. And it’s easier to get the money if you have a good idea,” said FameBit founder David Kierzkowski from Los Angeles. “Investors are just more savvy here. And the risk tolerance is a lot different.”

He is in the process of moving FameBit to that city, to be closer to potential customers and partners. His startup was enrolled in the 500 Startups accelerator program in San Francisco. He recommends all Canadian startups spend at least four to six months in Silicon Valley. “They will see a world of difference in how cheques get written, partnerships get formed, and relationships get built,” he said. “You literally can close a deal for $200,000 with a 15-minute call or coffee break.”

That’s what happened with FameBit’s most recent investor, Machinima founder Allen DeBevoise. “I talked to him for 10 minutes and he said, ‘I love what you’re doing. Put me in for $100,000,’ ” Mr. Kierzkowski recalled. “You never get that in Canada.

“Even when we were part of 500 Startups, one of the most renowned accelerators, I contacted five Canadian investment firms and none wrote a cheque,” he said.

Mr. Kierzkowski insists Canada has a lot of startup talent, but too many of the country’s venture capitalists have a “banker mentality.” In other words, they try to eliminate all possible risk and thus only make a handful of deals a year. “As a result they miss out on great opportunities,” he said.

“We would never have the growth we have to date if we had stayed in Canada. We’d be in Toronto still begging for money.”